This Stock Market Bubble Will Burst Like An Overinflated Balloon [View article]

DavidLMO,

"The Fed did NOT do a helicopter drop. Had they done one rather than pissing away 3 + trillion on QE and their stupid ZIRP, some good might have been done to the real economy rather than simply pumping up stocks."

But they have to "pump up" the stock market to give the illusion that things are going well. Let me tell you one thing.... if the economy was truly doing well like we are led to believe, we wouldn't continue taking on trillions in new debt every year. This whole thing is a house of cards that will crash eventually.

This Stock Market Bubble Will Burst Like An Overinflated Balloon [View article]

Learner16,

"I agree the market looks somewhat overvalued, but a full-blown bear market seems unlikely as there seems to be no chance of a recession short term."

There seemed no chance of a recession in early 2007 either.....by the end of 2007 we were in a recession. If we knew a recession was going to hit, say, six months from now, the stock market would adjust for it today. Unfortunately, we never know about these things until it's too late.

This Stock Market Bubble Will Burst Like An Overinflated Balloon [View article]

"Currently the US banks, at least, are quite safe from any trouble, as far as I can tell."

They appeared quite "safe" in early 2007 as well, and look what ended up happening! Even the people running these banks don't fully understand the risks they are taking on (and they don't need to anyway since they get paid no matter what happens).

This Stock Market Bubble Will Burst Like An Overinflated Balloon [View article]

compuirv,

"Is it a suggestion to sell everything and start from that point?"

I would never suggest such a crazy thing (mostly for tax reasons though). I just described a simple strategy that people can use, it's their choice if and how they want to implement it. Although you do have to have a basic understanding of options and hedging to use this strategy.

This Stock Market Bubble Will Burst Like An Overinflated Balloon [View article]

rreeuwijk,

You have to value the S&P 500 the same way you value a company - based on "normalized" earnings because profit margins can fluctuate wildly from year to year. The "E" in the Shiller P/E ratio is a very good proxy for normalized earnings.

No one can deny that profit margins are at an all-time high as of this moment. They will eventually revert to their historical mean, and when that happens, stock prices will suffer.

This Stock Market Bubble Will Burst Like An Overinflated Balloon [View article]

rreeuwijk,

The P/E is not 17x, I don't know where you're getting your flawed information from. Moreover, even if it was 17x (which, as I said, it's not), the market would still be overvalued because corporate profit margins are at an all-time high right now. Margins, more so than any other financial variable, are mean-reverting. Once they come back down to more reasonable levels, the P/E ratios will naturally go up (because the "E" in P/E) will go down significantly.

This Stock Market Bubble Will Burst Like An Overinflated Balloon [View article]

Jerbear,

"There are been articles that show if the Schiller PE is calculated with a 5 year average instead of a 10 year average then the market it not overvalued."

It would still be overvalued, but slightly less so. If you calculate the P/E based on just the TTM earnings, it will look less overvalued still. This is because, as I showed in my article, corporate profit margins are at an all-time high right now. But since margins are mean-reverting, they will eventually go back down to a more reasonable level. When this happens, the market will look even more overvalued than it is now.